Lufthansa faces a serious challenge to its remaining domestic monopoly routes as German antitrust regulators threaten to widen their investigation into the carrier's pricing practices. The move comes as management attempts to secure further cost savings in a new pay round with unions.
Lufthansa already faces sanctions from the German federal cartel office over pricing on its monopoly Frankfurt-Berlin route - Germany's busiest with over 1 million passengers annually. Average fares are 25 per cent higher than on Berlin-Munich, a trunk route of similar length where Lufthansa competes with Deutsche BA. The investigation is expected to be completed by the end of October.
But Andreas Knochenhauer, director of the cartel office's traffic division, says he has a list of other monopoly routes which may be investigated but is 'waiting to see how far we get with Berlin-Frankfurt before we decide to proceed.'
Describing the Frankfurt-Berlin investigation as a 'test case', Knochenhauer says the pricing issue is more pressing on that route because of slot restrictions at Frankfurt. Lufthansa maintains its monopoly because its 16 daily flights present an insurmountable barrier to entry for any would-be competitor.
Two other Lufthansa monopoly routes that have attracted the interest of the cartel office are Munich-Cologne and Germany's second busiest domestic sector, Munich-Hamburg. But Knochenhauer says if Deutsche BA proceeds with plans to launch competing services on these routes next April it would remove the need for any investigation. The British Airways affiliate confirms it wants to start services on the route but adds this hinges on slots and its fleet expansion plans.
Two other sectors which could attract the regulators are likely to be from Frankfurt to Hamburg and Munich. Deutsche BA claims to have no interest in either because it wants to avoid 'feeding' Lufthansa at its main hub.
Lufthansa, which loses money on its domestic network overall, claims that even with business class fares of DM800 on Frankfurt-Berlin it fails to turn a profit on the route. Stefan Pischler, SVP Sales Germany, says costs on Frankfurt-Berlin route are 25.6 per cent higher than equivalent domestic sectors not linked to Frankfurt. Longer turnaround times at the hub and the use of A310s instead of B737s flown on the rest of the domestic network drive the costs up. Some German analysts believe any action by the cartel office, which would force the carrier to cut its fares to levels similar to Munich-Berlin, could have a 'noticeable effect' on the carrier's bottom line.
Nevertheless, after reporting a 37 per cent drop in first half pre-tax group profits to DM119 million (US$80 million), Lufthansa chairman Jürgen Weber will not welcome any forced reduction in revenue, as he tries to push the carrier's unions in to accepting a three-year wage freeze in a bid to save a further DM1.5 billion annually by 2000. The ÖTV rejects the freeze and is asking for a 2.3 per cent rise; DAG wants 4 per cent. The ÖTV has also asked for details of the proposed employee profit-share scheme.
Management is also trying to prepare the unions for the extension of its franchising concept. Lufthansa CityLine may use partner carriers to operate some of its jet aircraft from 1998, following the transfer of the carrier's Fokker 50s to Contactair, says MD Dr Karl-Friedrich Rausch.
Mark Odell
Source: Airline Business
